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That Pesky GST

by Gary L. Black

In this article, Gary L. Black explains how GST is dealt with for mixed use properties.

That downtown building looks ideal for your business. Nice ground floor storefront with two apartments upstairs, lots of parking at the rear for your customers and for the tenants.

You wish to make an offer, but the issue of GST has you stumped. The vendor says that he did not pay it when he bought it three years ago and assures you that everything should be okay. Are you safe to present an offer that reads GST is “in addition to” the purchase price. Can you rely on the vendor’s statement?

The simple answer is “no.”

In each case, it is necessary to examine the property’s historic use.

Normally, when dealing with a mixed-use property, GST must be paid on that portion of the purchase price that relates to the commercial use. For example, if the vendor is supplying a property where one-half the value is attributable to commercial use and the other one-half to residential use, GST would be paid on the commercial half of the purchase price.

Why then did the vendor not pay any GST on his purchase? The answer lies in the property’s use when the vendor bought. At that time, his seller occupied the whole upstairs for his own principal residential use and ran his business out of the ground floor store. That scenario qualified the property for a used residential property exemption for GST purposes.

Further examination discloses that shortly after your vendor bought, he converted the upstairs apartment into two apartments and has never occupied either unit for his own residential use. Although the mixed-use ratio remains the same, for GST purposes, the property he is now supplying to you differs from the property he bought. GST now applies and is payable on the commercial portion of the property’s value.

Tricky isn’t it?

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